Toys ‘R’ Us is in a world of hurt. They owe billions in debt and filed for chapter 11 bankruptcy last Monday. They are over-indexed in big-box stores, a segment of retail that is rapidly dying and losing share to the likes of Amazon and Walmart. They are late to eCommerce, which only became a priority for them in July, 2017. And coming out of bankruptcy, they plan to deploy a strategy that looks flashy in headlines but disappoints when considering its execution.

In short, Toys ‘R’ Us’ primary focus is to revive the in-store experience by installing Augmented Reality (AR) throughout their stores.

With the use of a smartphone or tablet, young shoppers will be guided by icons and floor stickers, then prompted to aim their smart device at a sign on shelf. These virtual interactions, totaling 13 throughout each store, will provide them the opportunity to race digital monster trucks or adopt virtual baby dolls or shoot virtual baskets by sweeping a ball into a hoop.

From CEO, David Brandon, "It's going to transform the experience of coming into a Toys ‘R’ Us brick and mortar store and turn it into something that’s quite different and a lot more fun…We believe that’s going to drive a lot more traffic into our stores which will ultimately put us in a position where we can be more successful at growing our sales and our company’’ (USA Today).

Augmented Reality

Most recently, Pokémon Go, a smartphone-based AR game, became a global phenomenon overnight. Facebook and Apple have made headlines as serious players in this space. And as a whole, the AR/VR startup industry saw a collective $1.8B invested in 2016, trending towards $2.16B in funding for 2017 (CB Insights).

It’s no question that AR is the future of immersive experiences, however, Toys ‘R’ Us’ proposed installments contain many barriers, the first being entry.

Shoppers will need to download an app for their smartphone or tablet before having access to AR capabilities. This is an unnecessary friction for adoption that could be solved with a supply of proprietary devices. Also, for the parents that haven’t purchased a “smart” device for their young children, this brings in the possibility of mom or dad’s cell phone returning with a cracked screen or unintended text messages sent to their most recent contacts.

Consider the chaos that will emerge from pint-sized humans wielding their parent’s smartphones in a warehouse with shelves…crowded aisles, distracted children, a clumsy AR experience (considering Toys ‘R’ Us is attaching it to existing shelves). If Disney was creating this experience, there wouldn’t be traditional shelving or aisles to walk down. Shopping carts would be non-existent and the acquisition of items would be completely transformed. The AR would blend seamlessly with an environment that was built for an immersive experience, while concurrently facilitating the purchase of goods.

Instead, this feels like AR for the sake of AR, and these micro experiences seem lackluster and dull. Especially when considering their context and the video games these kids are exposed to at home. Why equip kids to sweep a ball across a screen when they could enable kids to shoot into a real-life hoop?

From a retail perspective, it will be neat for Toys ‘R’ Us to prove the AR concept in-store, but don’t expect parents to love it. If anything, it could have an inverse effect. Consider the difficulty of finding an appropriate gift while avoiding half-sized cyborgs (your kid being one of them) and managing your episodic FOMO from not having a cell phone…

True Value is in a Differentiated Experience:

Toys ‘R’ Us needs to shift its strategic focus and become an entertainment facility—building an experience that delights parents and kids alike. This would require a serious overhaul to the store layout, but could give them a realistic shot at survival. Given the company is worth more dead than alive (i.e. liquidation), I don’t think anything short of “radical” should be contemplated.

For that reason, I think Toys ‘R’ Us should consider the following:

Don’t be a store. Become an entertainment facility. Eliminate the traditional layout, removing shelves and moving excess inventory to the stocking room. Shoppers could then shop a smaller selection of the most popular items, or choose from the entire suite via a digital interface. Think kiosks or smart screens that would do the shopping for them. From a supply chain perspective, look to Best Buy and model their go-to-market strategy. Enact chain-wide ship-from-store capabilities that get out-of-stock items and online packages to customers faster and more cost efficiently instead of relying on more distant fulfillment centers. This would amplify the online shopping experience for Toys ‘R’ Us customers, driving more sales through their site and likely more orders being picked up on site.

Build for the experience. Using the freed up square footage, Toys ‘R’ Us could build interactive play areas that are more immersive and authentic. Leveraging AR/VR and other non-traditional installments, their stores become ecosystems of fun where kids get lost in play and discovery. Transition Toys ‘R’ Us employees from cashiers, managers, stocking help, etc., to “Entertainment Ambassadors,” and culturally, the organization begins to evolve into something greater than merely a toy retailer.

Create additional value for the parents. Build a full-service coffee lounge and provide free Wi-Fi. Allow them to forget about parenting for a moment while having access to the Sunday NFL package, Bravo TV or HBO. This would provide an additional revenue stream, while differentiating the experience of being a Toys ‘R’ Us shopper.

It’s time for Toys ‘R’ Us to throw rational thinking to the wind and truly innovate.

To keep up with the Amazons and Walmarts of the world will take a radical approach. No longer can Toys ‘R’ Us rely on selling toys, since these companies are cheaper, more efficient and better at it. They need to sell an experience that differentiates them from all other retailers and delivers true value to parents and kids.